Thursday, August 23, 2012

Life Insurance Options for Nannies

Whether they simply put off obtaining insurance or are afraid that they cannot afford the premiums, many nannies opt-out of securing life insurance. However choosing to forgo life insurance can have financially devastating results on those left behind in the event of a tragedy. Often nannies mistakenly believe that life insurance policies are only important for those with families and dependent children, but this isn’t actually the case.

Should the unthinkable happen, your family may be left responsible for burial and funeral costs that you leave behind, along with any outstanding debts you may owe. Taken as a whole, your final expenses could easily add up to several thousand dollars. By obtaining a life insurance policy you’re insuring that the beneficiary of the benefits can afford to handle any remaining expenses in the event of your untimely death.

Types of Life Insurance

The first step to choosing a life insurance plan that suits your needs is to understand the different types of life insurance commonly available.

Term Life Insurance — By purchasing a term life insurance policy you will be covered for the entire length of the contract, or term, as long as you pay the premiums. Annual-renewable term insurance, which you can buy each year, allows you to renew without undergoing health exams or physicals every year. Nannies with no dependent children or a spouse that relies upon their income to survive may find that term life insurance is their best bet, especially if they have no immediate plans to build investments.

Whole-Life Insurance — On the opposite end of the life insurance spectrum from term coverage is whole-life insurance, which is permanent and tied to an investment fund. Each year, part of your premium goes toward the fixed-amount death benefit, while the rest is contributed to investments made by your insurance company. Over the course of your life and policy, you will accrue additional income. Holders of whole-life policies are able to borrow against that income, which isn’t taxable.

Universal Life – A permanent policy that combines term insurance with investment power, a universal life policy doesn’t typically guarantee specific rates in order to obtain higher returns. While these policies can generate a significant amount of money by the time a young nanny reaches retirement age, they’re not generally considered a wise alternative to more traditional retirement investments like 401(k) or IRA.

Variable Life and Universal Life – A bit riskier than whole-life or universal life policies, a permanent variable policy includes an investment fund tied to mutual fund investments or stocks. Such policies do not guarantee returns on investments.

Deciding What’s Best For You

As with so many other things in life, there’s no hard and fast answer regarding the different types of life insurance policies. Every situation, and every potential policyholder, is at a different place in their life and has different needs. In order to accurately determine the best fit for your household, even if that household is currently situated in your employers’ home, you should examine every aspect of each potential choice. Young, unmarried nannies with no dependent children and minimal outstanding debt are likely to have all the coverage they need from a relatively small term policy; live-out nannies that have started families of their own should definitely consider a larger policy in order to replace the income loss the household would sustain in the event of their unexpected demise.

In order to accurately assess your needs, it’s wise to speak with a licensed insurance agent; however, you should also arm yourself with as much knowledge as possible before your meeting in order to prevent the accidental purchase of more insurance than is actually necessary. There are some agencies that specialize in insurance for nannies and household employees, like Eisenberg Associates, based in Newton, Massachusetts. Due to their intimate understanding of the industry and the inherent needs of domestic workers, they may be the best choice. Have a strong idea of what you’re looking for in an insurance policy, what your budget is for paying premiums and how much of a death benefit you wish your family or beneficiaries to receive. Depending on how much you want to leave to your beneficiaries, you may opt for a policy small enough to cover only final expenses or one large enough to ensure that a spouse does not have to return to work in the event of your death. While you should take your time in order to make the best possible decision under minimal pressure, it’s not wise to put off the process until it’s too late.